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Government in sensible move shock

And Summer’s lease hath all too short a stay

So the Government has seen sense and is going to try and do something about the rather dubious  selling new build houses – houses mind you, not flats – on a leasehold basis rather than the freehold. The Business Secretary Sajid Javid, told the BBC yesterday that the Government would be begin an eight-week or so consultation on how to avoid this and maybe even ban it.

For the last year or so The Guardian – and other papers have picked it up too – has been campaigning to highlight the issue.

There are reckoned to be 4million leasehold properties in England and Wales and some 1.5million of them are new build houses rather than flats, a proportion that has risen alarmingly in the last few years.

Why alarmingly? Because thousands of people have been caught out and ended up with exorbitant costs or onerous terms and conditions and houses that are impossible to sell. In many cases it’s because the freehold has been sold on by the housebuilder to a third party.

There have been many, many horror stories in the papers of leasehold house owners who have been charged thousands to make alterations to their homes, whose ground rents are doubling every 10 years, whose quotes to actually purchase the freeholds themselves have rocketed.

It’s easy to imagine how the practice came about. The new finance director of ABC Housebuilders, poking around the books, says in the board meeting: “Hey guys, we’ve got all these freeholds. Why don’t we sell them to this other company and pocket the cash? That’ll make our shareholders really happy.”

I suppose there’s an argument that, on paper at least, it makes some sense. These are new build, estates – for some reason mostly, but not exclusively, in the North West region. Some are in the shared ownership sector, some are in the private sector. All of them will have roads to maintain and grass verges to keep mown and someone has to pay to have that done. If you’ve sold off all the houses freehold, there is no reason for those purchasers to pay for it, it’s not their land. Equally, there’s not much incentive for the developers to do it as it’s land that they own but won’t be making any money on. Far better then, to be able to charge ground rent to your purchasers. Oh, and for good measure, build in a clause that doubles that ground rent every, say, 10 years, just to keep pace with inflation. Who cares if it will cost £10,000 ground rent on a three-bed semi in Lancashire by 2060 – you won’t be around then?

It would be easy to ask why people are even buying houses on this basis in the first place, but if you’ve finally found a house you like, one that you can afford, in the location you want, would you really stop to question the implications of whether it is freehold or leasehold? Especially if all the other houses in the area are being sold that way. Especially if you are told that you could purchase the freehold at a later dates for a nominal sum.

Just like in the sub-prime mortgage sector, freehold titles have been sold on and sold on so that in some cases they have ended up far away from the original developers. If the Government does ban the practice going forward and put a legal limit on the ground rent that can be charged, that will help future purchasers, but no-one yet is sure how it will affect those who are already caught up in it. Many people wo purchased properties like this are already demanding action. Taylor Wimpey have put their heads above the parapet and are putting money aside – a lot of money – to try and sort out some of the problems

Housing in this country is already messed up – we don’t have enough of it, in the right places and what there is is too expensive, by and large. All this really doesn’t help one little bit.

 

 

 

 

About Fiona Russell-Horne

Fiona Russell-Horne
Group Managing Editor across the BMJ portfolio.

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